Foreclosures Drop as Dark Clouds Gather

With rising numbers of foreclosures on their way, banks are prepared to price aggressively, according to a RealtyTrac spokesperson.

Even as foreclosure numbers continued to fall in February, trends offered ominous warnings to rises on the way, according to data released today by RealtyTrac. Filings—which include default notices, scheduled auctions, and bank repossessions—were down 2% from January and decreased 8% year-over-year for a total of 209,900. But the month’s decrease was also the lowest seen since October 2010.

"February’s numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed," said Brandon Moore, CEO of RealtyTrac. "Although national foreclosure activity was pushed lower by decreases in a handful of larger states, 21 states posted annual increases in foreclosure activity, the most states with annual increases since November 2010."

And as the federal government filed a settlement over foreclosure and mortgage abuses with five large lenders earlier this week, more foreclosures are likely on the way, Moore continued. "Not surprisingly, many of the biggest annual increases in February were in states with the more bureaucratic judicial foreclosure process, which resulted in a larger backlog of foreclosures built up over the last 18 months in those states."

Indeed, among the 26 states that have a judicial foreclosure process, filings were up 2% and 24% on a monthly and yearly basis, respectively. In non-judicial foreclosure states, filings were down 5% from January and were 23% lower year-over-year.

And according to RealtyTrac’s anecdotal intel, builders can expect these newly foreclosed properties to be priced to sell. "What we’re hearing from lenders is that they want to get rid of these properties. They’re in the mode of disposing of them quickly," said Daren Blomquist, a RealtyTrac spokesperson, on a call with Builder yesterday. "It’s going to keep a lid on home prices."

Nevada, California, and Arizona posted the highest foreclosure rates among states in February. While Nevada registered the highest rate of foreclosure (one in every 278 housing units received a filing during the month), California far outpaced any other state in number of filings with 48,422. The next-closest contender was Florida, with 26,337 filings in the month.

But while California has dominated the list of metro areas with the highest foreclosure rates in recent months, February offered a taste of the change likely to come: Among the 20 largest metro areas, 10 registered annual increases in filing, and all of them were on the East Coast or in the Midwest. Most of the metro areas with the largest annual declines in foreclosure activity were in the West, most prominently Seattle and Phoenix, which saw foreclosure rates fall by 59% and 43%, respectively.

While no filing type saw a large change on a national level during the month, many state numbers were far more dramatic. First-time default notices, at a total of 58,886, were up 1% on a monthly basis and down 7% annually. However, notices were up 20% or more on an annual basis in 12 states, including a 321% increase in Hawaii, a 157% increase in Maryland, and a 64% increase in Connecticut.

Notices dropped off precipitously on an annual basis in several states, including an 89% dropoff in Nevada, a 72% decline in Michigan, a 44% drop in New York, and an 11% decline in California. Much of the declines stemmed from legislation and lawsuits, however. In Nevada, state legislation that requires lenders to file an additional affidavit before starting the foreclosure process went into effect in October 2011, and in Michigan, "a 2009 law that required notices of default to be publicly recorded recently expired," RealtyTrac reported in a release discussing the numbers, adding that "attorneys general in New York, California, and Nevada have filed lawsuits against major lenders in recent months."

Foreclosure auctions were down 2% from January and declined 13% year-over-year to a total of 84,180. Scheduled auctions were up 25% or more in 13 states, including a 190% increase in Kentucky, a 170% increase in Illinois, and a 98% increase in Iowa.

Lender repossessions, at a total of 63,834 properties for the month, were down 4% and 1% on a monthly and yearly basis, respectively. However, on a state level, 17 states saw a jump in REOs of 20% or more, including Massachusetts (up 114%), North Carolina (up 95%), and Florida (up 90%).

BUILDER Online provides home builders with home building news, home plans, home design ideas, and building product information, helping them manage their home building operations efficiently and profitably.